Oil prices fall as trade war worries outweigh supply disruptions

Ann Santiago
June 2, 2019

The decline last week reduced crude stocks from their highest volume since July 2017 recorded the previous week.

Front-month Brent crude futures, the worldwide benchmark for oil prices, were at 66.28 USA dollars at 0311 GMT, down by 59 cents, or 0.9 percent, from last session's close.

Investors are looking for weekly crude inventories from the US Petroleum Institute (API) and the US Energy Information Administration (EIA).

Brent futures were on track for an 11% slide in May and WTI for a 14% drop, which would be their biggest monthly losses since November.

Oil prices have been supported this year by output cuts of roughly 1.2 Mmbpd from the members of Opec+, which includes most members of Opec, along with a number of non-Opec producers led by Russian Federation. -China trade war, Kallanish Energy understands.

"This fresh tariff headline offers a "pile on" effect to an oil market that has already been seeing downside pressure from some unexpectedly large USA crude supply increases that have been weighing on values across this month of May", Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

U.S. West Texas Intermediate (WTI) crude futures fell 26 cents, or 0.4%, to $58.88 per barrel, after hitting a low of $56.88, the lowest since March 12. The prospect of a protracted trade war between the world's two largest economies has had investors and traders anxious that global economic growth will slow down, dragging down global oil demand growth with it.

A senior Chinese diplomat compared trade actions from Washington to "naked economic terrorism".

The OPEC-led supply cuts are likely to continue to provide support for crude oil prices, but they may not be strong enough to stop the price decline if demand plunges. "Under a full-blown trade war scenario, demand growth could be cut in half to 0.7% (year-on-year)".

"The only reason that oil hasn't fallen further is that supply remains relatively tight with ongoing Opec supply cuts, tensions in the middle east and Venezuela's on-going political struggles". Iran needs to export at least 1.5-2.0 million bpd of crude to balance its books.

Since OPEC and its allies started withholding supply in January, oil prices have risen by about 30%.

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